EUROPEAN FX UPDATE: USD rally pauses for breath as markets await Q2 flash GDP and FOMC

USD: DXY -0.1%; 98.83

• DXY is a touch softer as the recent recovery in the USD pauses for breath. The USD has been bolstered in recent sessions by developments on the trade front following the recent EU-US agreement and expectations of an extension to the 90-day truce between the US and China, subject to Trump's approval. Focus today will turn to the data and central bank slate. On the former, ADP metrics are due today ahead of Friday's crucial NFP print. However, the market is likely to place greater emphasis on flash Q2 GDP metrics, which will be eyed for signs of a bounceback from the trade-distorted outturn seen in Q1. A few hours later, the market will be presented with the latest FOMC policy announcement. Expectations are unanimous that officials will stand pat on policy and retain their wait-and-see stance in lieu of the uncertainty stemming from the Trump trade policies. Market pricing places the odds of a September reduction at 68% with a total of 46bps of loosening priced by year-end. DXY is currently tucked within yesterday's 98.58-99.14 range.

EUR: EUR/USD +0.1%; 1.1557

• EUR is attempting to atone for recent losses following the downside seen in the wake of the recent EU-US trade deal, which has been framed by many as a "win" for the US and subsequently drawn objections from various European leaders. Note, the agreement still requires ratification from the EU and national parliaments. Focus today turned back to the data slate following national and EZ-wide GDP metrics. French Q/Q Q2 GDP picked up to 0.3% from 0.1% but was followed by a 0.1% contraction in German growth (prev. 0.4%). The subsequent EZ-wide print saw growth slow to 0.1% from 0.6% following an unwind of the front-loading seen in Q1 ahead of expected tariffs. The 0.1% print was a touch above the consensus 0% but was largely overlooked by the market given the trade agreement struck by the EU and US over the weekend, which will remove some uncertainty for businesses, but ultimately act as a headwind for the region. Elsewhere, the ECB's wage tracker passed with little in the way of fanfare; 2025 metric was revised a touch higher to 3.152% from 3.144%. EUR/USD remains within yesterday's 1.1519-99 range and below its 50DMA @ 1.1574.

JPY: USD/JPY -0.4%; 147.90

• JPY is attempting to claw back some lost ground vs. the USD with some tailwinds seen overnight after Japan's government issued an emergency warning and ordered an evacuation following a powerful 8.7 magnitude earthquake in Russia's far east region. Attention now turns towards the upcoming BoJ policy announcement, which is set to see policymakers stand pat on current policy settings. A recent Reuters poll showed 60/72 economists surveyed forecast the BoJ to refrain from any rate adjustments for the next two meetings through to September. Markets price 19bps of loosening by year-end. The BoJ will also release its latest Outlook Report containing board members' median forecasts for Real GDP and Core CPI. USD/JPY has slipped below the 148 mark with a session low @ 147.81

GBP: GBP/USD +0.2%; 1.3374

• GBP is marginally firmer vs. the USD after a run of four consecutive losses. It remains the case that incremental macro drivers for the UK are lacking after Trump's visit to the UK provided little new for markets to go off and this week's UK data slate lacking in tier 1 releases. As such, given the busy US docket today, near-term impetus for Cable is likely to be provided by the USD leg of the equation. Cable remains on a 1.33 handle and trades in close proximity to yesterday's 1.3364 peak.

Antipodeans: AUD/USD -0.2%; 0.6498. NZD/USD U/C; 0.5954

• AUD sits at the foot of the G10 leaderboard following a soft outturn for Australian CPI overnight, which saw headline Y/Y CPI slow to 2.1% from 2.4%. Oxford Economics writes that the data clear the way for another rate cut in August (currently priced at 92%). The desk adds that with "underlying inflation close to the midpoint of the RBA's target range and trending lower", it expects an additional cut in Q4; markets see 62bps of loosening by year-end. AUD/USD has slipped back below its 50DMA @ 0.6513 and returned to a 0.64 handle but is just about holding above yesterday's 0.6496 trough. NZD/USD is flat vs. the USD and sits within yesterday's 0.5942-76 range.

CAD: USD/CAD U/C; 1.3766

• CAD is flat ahead of the BoC rate announcement, which is expected to see the policy rate left unchanged at 2.75%. Additionally, the BoC is likely to leave out forward guidance again, given uncertainties in the economy. The Monetary Policy report will be eyed to see how the Bank expects Trump's tariffs to impact the Canadian economy based on the current trade environment. Recent data has seen inflation remain towards the top-end of the BoC's target, while the labour market situation improved, dimming the prospects for near-term rate cuts. Money markets are only pricing in 16ps of further easing by year-end, implying a 64% probability of one more rate cut this year. USD/CAD remains on a 1.37 handle and within yesterday's 1.3731-88 range.

30 Jul 2025 - 10:25- ForexData- Source: Newsquawk